Last week, LIMRA announced that total U.S. annuity sales were $113.5 billion in the first quarter of 2024, 21% above prior year results and just shy of the quarterly sales record set in the fourth quarter 2023. But in addition to the growing demand for retail annuities, LIMRA also found a surge in worker interest to invest in an annuity within their employer-sponsored retirement plan.
In 2023, over three-quarters of defined contribution (DC) plan participants in their 40s, and two-thirds of all participants, would be likely to invest in an in-plan annuity if it were to be offered by their employer, according to a post today in LIMRA’s Industry Trends: “Future Retirees Face a Different Reality and Increasingly Look to Annuities for Financial Security.”
Earlier LIMRA research found nearly two-thirds (64%) of Gen Z and Millennials are interested in contributing to an in-plan annuity.
Among DC participants who are at least somewhat likely to select an in-plan guaranteed income investment option, the top motivators include:
• 51%: More financial security in retirement because of lifetime guaranteed income
• 42%: Could make retirement savings plan work more like a pension
• 39%: Being able to create guaranteed retirement income through employer
LIMRA said tomorrow’s retirees are expressing greater interest in annuities to help them protect against market volatility and create guaranteed income for retirement. “There remains much work to be done to educate consumers, employers and advisors about the unique benefit of owning an annuity and the peace of mind annuity owners have knowing they will not outlive their savings in retirement,” the post said.
With pension access declining, annuity interest increasing
According to LIMRA’s Retirement Investors — Behaviors, Attitudes, and Financial Situations, half of today’s retirees have access to pension income allowing them to feel more confident in their ability to cover basic living expenses in retirement. LIMRA research finds 72% of today’s retirees report that their households receive enough income from lifetime-guaranteed income sources to cover all of the household’s basic living expenses.
But for those approaching retirement, access to a pension is much lower and continues to drop with younger generations. This shift means future retirees will have to rely primarily on their personal retirement savings to fund their retirement. As a result, less than half (47%) of working adults ages 50-75 believe they will be able to cover basic living expenses in retirement with guaranteed income sources. This represents an 11 percentage-point drop from 2017.
The pandemic and resulting market volatility have had an impact on investors’ mindset. Forty-five percent of investors say stock market volatility has made them more interested in investments with downside protection. As a result, interest in annuities—which was as low as 33% in 2018—jumped in 2022. For the first time, a majority of pre-retiree workers (51%) said they would consider converting a portion of their assets into a lifetime-guaranteed annuity in retirement. Pre-retirees’ interest remained high in 2023, with 52% willing to consider annuities.
LIMRA said this increased interest in annuities is likely because many future retirees understand they won’t have enough guaranteed income from Social Security or pensions to cover basic living expenses in retirement.
The industry has seen this play out over the past two years. Positive economic conditions (particularly rising interest rates) and consumer interest in investment protection and guaranteed growth drove record annuity sales in 2022 and 2023. And it’s carrying over into 2024, with the highest first-quarter sales results since LIMRA started tracking sales in the 1980s.
“The remarkable sales trends over the past two years continued into 2024. Favorable economic conditions and rising investor interest in securing guaranteed retirement income have resulted in double-digit sales growth in every product line,” said Bryan Hodgens, head of LIMRA research. “While there are potential regulatory and economic headwinds in the second half of the year, LIMRA expects annuity sales to continue to perform well.”
In particular, fixed annuity products—which offer principal protection and guaranteed growth—have been in demand, representing 74% of total annuity sales.
SEE ALSO:
• How Annuitizing Income Gives Retirees a ‘License to Spend’ (Twice as Much!)
• Why In-Plan Annuities are Gaining Momentum at Work
• What’s Behind Record Fixed-Rate Deferred Annuity Sales
• What to Consider When Contemplating an Annuity for a Defined Contribution Plan
• Next 12 Months Could be Tipping Point for In-Plan Annuities